Since March of this year, Bitcoin has experienced significant turbulence, with two consecutive 20% corrections. This marked shift in behavior contrasts sharply with the relative upwards stability seen throughout 2023 and early 2024. As Bitcoin begins to lose momentum, the implications for investors can be severe. Is the current price action signaling a major topping pattern with Bitcoin poised to move lower? Let’s dive into the details.
Bitcoin Price Channel
Following Bitcoin’s peak in March, we have been closely monitoring its price channel. Initially, our expectation was for Bitcoin to revert to this channel and potentially resume its bull market. Key moving averages were pointing upwards, suggesting a strong trend. However, the price action has diverged from these expectations.
Divergence from the S&P 500
In May, the S&P 500 surged to new all-time highs, creating a potential for Bitcoin to catch up with the broader market. This alignment prompted us to initiate a trade on Bitcoin through our website. Initially, the trade looked promising as Bitcoin seemed poised for a rebound.
Despite an initially positive move, Bitcoin failed to break above resistance and began diverging from the S&P 500. Recognizing this shift, we closed half of our position for a 10% profit when Bitcoin broke below its uptrend line. Unfortunately, Bitcoin continued to decline, hitting our stop loss and making us close the rest of our position at breakeven.
Current Technical Posture and Risks
Today, Bitcoin’s technical posture is broken, raising concerns about further downside risks in the short term. As a firm committed to risk management, we aim to avoid exposing our clients to unnecessary risks. Could this breakdown be a whipsaw or a bear trap? Absolutely, especially considering the S&P 500 is at all-time highs and historically, Bitcoin has closely followed its movements.
Historical Divergences and Correlations
The last two significant divergences between Bitcoin and the stock market occurred in January 2024 and January 2023. In both cases, Bitcoin eventually caught up to the S&P 500.
However, a similar divergence in November 2021 saw the S&P 500 correcting down to Bitcoin’s level. These historical patterns highlight the importance of cautious optimism and diligent risk management. This highlights the importance of risk management
Risk Management Principles
Effective trading hinges on robust risk management. We teach our clients to initiate trades with a favorable risk-reward ratio, book profits when the market is favorable, avoid closing winning positions too early, and prevent winners from turning into losers. These principles guided our Bitcoin trade, allowing us to manage risks effectively.
Bitcoin’s Current Trading Range
Currently, Bitcoin is in a sideways trading range with no clear direction. One scenario is for Bitcoin to test the bottom of this price channel before potentially catching up to the S&P 500, possibly forming a bear trap. We are closely watching for other trading opportunities.
Active Trade on Solana
We also have an active trade on Solana. We initiated this trade as Solana tested a key trend line defined by two lows in 2023. Since then, Solana has already gained 10%.
Solana’s chart looks strong, resembling its performance in July 2021, when it experienced a significant run-up followed by consolidation and a successful test of the 200-day moving average.
If Solana continues to follow its 2021 path, it could reach as high as $560. However, we will apply strict risk management strategies to protect our position if Solana begins to break down. Our selective approach to crypto trading has brought significant success to our clients, with minimal losses and substantial winners since the start of 2024.
Conclusion
Bitcoin’s recent corrections and divergence from the S&P 500 highlight the importance of vigilant market monitoring and robust risk management. While historical patterns offer some guidance, the current market environment requires careful consideration of both bullish and bearish scenarios. Our approach to trading, emphasizing risk-reward ratios and disciplined risk management, has proven effective in navigating these volatile markets. As we continue to watch Bitcoin and other cryptocurrencies like Solana, maintaining a strategic and cautious stance will be key to achieving long-term success. Click here to sign up! Subscribe to our YouTube channel and Follow us on Twitter for more updates!
